$250 Gifts, Possible New Laws

By Raul Rivera

On September 17th, 2015 the IRS proposed changes to the way a church can give tax deductible receipts for any contribution a person gives to the church in the amount of $250.00 or more. This new rule will allow a church to choose between one of two ways, both of which I will explain later. For now, let me explain the church’s responsibility to its donors when tithes and offerings are collected.

In order for church donors to receive a tax write-off for their donations, they must be able to substantiate, or prove, that they actually gave the money to the church freely and without any strings attached. The only way that a donor can prove this for gifts totaling $250.00 or more is with the receipt the church gives the donor.

The church, therefore, has the responsibility of providing giving receipts to donors. A few years ago, a couple in Texas lost $25,171.00 in deductions because the receipt that the church gave them was not compliant.

Let me now explain the current rule and follow it up with the new rule. Keep in mind that the IRS is not doing away with the current rule. They are simply creating a new secondary rule that gives churches another option.

Current rule for gifts of $250 or more

Section 170(f)(8)(A) states that “no deduction shall be allowed...for any contribution of $250 or more unless the taxpayer substantiates the contribution by a contemporaneous written acknowledgment of the contribution by the donee organization.” This is commonly referred to as “the $250.00 rule”.

This rule requires that any donation of $250.00 or more made to your ministry be treated differently if the giver received something in return. In order for a donor to receive a tax write-off, he must obtain a separate giving receipt that includes the following information:

1. The donated amount of money your ministry received and a description (but not value) of any donated property.
2. Whether or not the church provided any goods or services in consideration for the donations received.
3. A statement similar to the following: “No goods or services were provided in exchange for your contribution with the exception of intangible religious services.”

It is important to note that if the donor did not receive anything in return for his donation then you can itemize each written acknowledgment into the annual giving statement with all other donations. You will also want to make sure that you include a statement stating, "No goods or services were provided except for intangible religious services.”

Now, it is safe to say that there is usually an exception to the rule. Such is the case with the $250.00 rule.

Section 170(f)(8)(D) states that the substantiation requirements “shall not apply to a contribution if the donee organization files a return, on such form and in accordance with such regulations as the Secretary may prescribe.”

However, in issuing TD 8960, the Treasury Department and the IRS declined to issue any specific regulations pertaining to this exception. This is because of its belief that the present substantiation requirements work effectively, while putting minimal burden on both the charitable organization and its donors.

Proposed changes to gifts of $250 or more

On September 17, 2015, the IRS proposed rule changes to the current substantiation requirements (click here to read the proposal in full). The proposed rule change indicates that a charitable organization may choose to file an information return with the IRS, on behalf of the each donor, that would satisfy the donor’s responsibility to substantiate a charitable deduction.

Should an organization choose to file this return with the IRS, it would be required to provide the following information on each (yet to be created) information return:

• the organization’s name and address;
• the donor’s name and address;
• the donor’s taxpayer identification number or Social Security number;
• the donated amount of money and/or a description of any donated property;
• whether or not the donee organization provided any goods or services in consideration  for the donation; and
• a description and good faith estimate of the value of any goods or services provided by the donee organization.

This information return would not only need to be filed with the IRS, but a copy would also need to be sent to the donor.

Information returns under the proposed rule change would need to be timely filed with the IRS by February 28th each year. The charity would also need to provide a copy of the information return by the same date.

The good news is, however, that if this proposed change goes into effect, it will NOT be a mandatory requirement for charitable organizations. The IRS stated, “In order to minimize the burden on donees [charitable organizations], the proposed regulations provide that donee reporting is not required, but may be done at the option of a donee organization. If a contribution is not reported using donee reporting, then the donor must obtain a contemporaneous written acknowledgment.”

What to take from this

Now, since this proposed rule change is NOT going to be mandatory and the IRS expects this new information return to be used in an “extremely low percentage of cases”, you may be wondering, “Why are you sharing this information with us?” Well, I am glad you asked.

I want to use this post to illustrate how important substantiation requirements are to the IRS when it comes to charitable donations. Yes, the IRS estimated that only a low percentage of charitable organizations will use the newly proposed reporting system. But that is in large part due to the fact that the IRS believes most charitable organizations have an effective and established system for issuing the necessary contribution statements.

My question to you is, “Do you have an effective and established system for issuing contribution statements to your donors?”

I know what you must be thinking: “Great. Something else to add to my plate!” Trust me when I say that I know how full and overwhelming your plate can be as a pastor. And that is why part of our vision here at StartCHURCH is to make life easier for pastors.

Kingdom Steward is our cloud (online) based software that allows you to easily track tithes, offerings, and attendance without ever worrying about losing that information. Because Kingdom Steward is cloud based, you are able to access the information from any smart phone, tablet, or computer as long as you have an Internet connection. In addition, you are able to generate the giving receipts and issue them to your congregants via email the very same day that you enter in the information.

Conclusion

With church compliance in a seemingly ever changing state, I want to encourage you to not let burdensome regulations paralyze the dream and vision that God has placed in your heart. Join us at one of our Ultimate Church Structure Conferences where you will learn more about charitable contribution requirements for both the church and your members. Your ministry will be better because of your commitment to grow in knowledge.

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